RealTime IT News

Netscape Confirms Merger Talks With AOL

Netscape Communications Corp. Monday confirmed it is in negotiations with America Online Inc. about a possible merger, although it said an agreement has not been reached.

The proposed merger terms would be a stock deal where Netscape shareholders would receive .45 shares of AOL common stock for each share of Netscape they own. The deal would be valued at about $4 billion.

Among the proposed terms in negotiation, AOL would take control of the Netscape portal, Netcenter and also Netscape's Web browser.

In a side arrangement, Sun Microsystems, Inc., which already has agreements with Netscape, would distribute Netscape's electronic commerce software. Sun, in return, would pay AOL a user fee. The deal would give Sun greater access to Netscape's software and further the reach of its Java programming language.

Under the AOL-Netscape union, Netscape may find a safe haven, since it has suffered considerably in the browser market. AOL would likely bundle Netscape's browser with its access software. AOL has reportedly been looking to move away from Microsoft's Internet Explorer, which it now bundles with its software. Additional advertising revenue generated from the deal would also be considerable given the strength of Netcenter.

The addition of Netscape's portal with AOL's powerhouse online offerings would be a formidable challenger to Microsoft's portal ambitions, such as MSN. Speculation has been made that Microsoft Chairman Bill Gates might even ask the government to intervene in a possible AOL-Netscape alliance.

As expected Microsoft used the announcement to advance its position that the government's antitrust case against it is unnecessary.

"Microsoft's competitors have always had the resources to change the landscape of the market. We welcome the competition," said William Neukom, Microsoft's general counsel.

Separately, Netscape said it is delaying the release of its fiscal fourth-quarter earnings report by one day to Tuesday. Analysts are estimating Netscape will earn 3 cents a share. In its fiscal third quarter which ended July 31, Netscape earned $88,000, breaking even on a per-share basis, on revenues of $150 million.